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Sept. 2 — Indiana's right-to-work law that precludes unions from collecting any fees from nonmembers in employee units they represent isn't preempted by federal labor law and doesn't violate the constitutional rights of unions or their members, the U.S. Court of Appeals for the Seventh Circuit ruled Sept. 2.

In a 2-1 decision, the appeals panel affirmed a district court's dismissal of federal preemption and constitutional challenges brought by officers and members of the International Union of Operating Engineers Local 150 against the Indiana Right to Work Act, which was signed by then-Gov. Mitch Daniels (R) on Feb. 1, 2012, after a rancorous, partisan debate in the state legislature.

The same union plaintiffs also are challenging the Indiana law under the state constitution, and the Indiana Supreme Court Sept. 4 will hear oral argument on a lower state court's ruling in the plaintiffs' favor.

“Now that the federal courts have concluded the statute [that] the people's representatives in the legislature passed does not violate federal law, we will argue that the statute also complies with the Indiana Constitution and ought to be upheld,” Indiana Attorney General Greg Zoeller (R) said in a Sept. 2 statement.

The union lawyers still are reviewing the opinion and the plaintiffs' next steps in federal court may depend both on that analysis and the ultimate outcome in the state court, said Pierson, who is with the Operating Engineers' legal department in Countryside, Ill.

‘Right to Work' Laws Predate 1947 Act

In federal court, the union argued the National Labor Relations Act, as amended in 1947, preempts the state law, because the NLRA bans union shops but expressly permits employers and unions to agree on less extreme union security provisions such as requiring nonmembers to contribute to their collective bargaining representatives.

But the Seventh Circuit said the NLRA doesn't preempt state right-to-work laws such as the Indiana statute.

Some 24 states or U.S. territories currently have some form of right-to-work law, and 18 jurisdictions, including Guam, have adopted language “substantially identical” to the Indiana law, the appeals court said. A dozen states already had such laws when Congress amended the NLRA in 1947 by passing the Taft-Hartley Act, the court said.

“The longevity of many of these statutes, coupled with a lack of disapproval expressed by the Supreme Court, suggests to us that Indiana's right-to-work law falls squarely within the realm of acceptable law,” Judge John Daniel Tinder wrote.

“The Supreme Court has clarified the relationship between these two provisions: § 14(b) [of the NLRA] was intended to prevent other sections in the NLRA from ‘completely extinguishing state power over certain union-security arrangements,' ” the court said. “Thus, we read Section 14(b) as protecting states' authority to enact laws prohibiting union-security arrangements that are permissible under Section 8(a)(3) and other provisions of the NLRA.”

“The statutory question posed is whether Indiana's new law is preempted by federal law, or threatens the union's First Amendment rights,” Judge Tinder wrote. “The answer is an emphatic no.”

The district court also properly dismissed the union plaintiffs' constitutional challenges, including that the Indiana law violates the equal protection clause by allowing “free riders” to infringe on unions' First Amendment free speech rights or on union members' constitutional rights to freedom of association and assembly, the appeals court said.

“We hold that the law does not violate the equal protection clause because it does not implicate a fundamental right, and it passes the low bar of rational basis review with ease,” Tinder wrote.

“The statutory question posed is whether Indiana's new law is preempted by federal law, or threatens the union's First Amendment rights,” the court said. “The answer is an emphatic no.”

“Right-to-work laws like Indiana's have existed since before the passage of the Taft-Hartley Act and the inclusion of Section 14(b) of the NLRA,” Tinder wrote. “Congress specifically reserved to the states the power to write and enforce laws of this nature, in accordance with individual states' needs and wisdom. It is not our province to wrest this authority, which has been intact and undisturbed for over [65] years, from the states and erase the distinction between right-to-work states and non-right-to-work states.”

Judge Daniel A. Manion joined in the majority opinion.

Dissent Cites ‘Taking' Problem

In dissent, Wood said the majority's decision is “either incorrect” or “it lays bare an unconstitutional confiscation perpetuated by our current system of labor law.”

Under the majority's reading of Section 14(b), states can command unions to accept “free riders,” that is, union-represented employees who pay no part of the costs of collective bargaining and grievance adjustment, even though a union legally must provide such services to all unit employees regardless of membership, Wood said.

Since such a reading permits an unconstitutional “taking” of union resources, the dissent said it would hold NLRA Section 14(b) “does not support such sweeping force” for Indiana's right-to-work law.

“No ruling of the Supreme Court has gone this far, and the legislative history of section 14(b) (for those who consider it relevant at all) is inconclusive,” Wood wrote. “Even if, however, one thought there were some ambiguity in the NLRA, the principle of constitutional avoidance provides a powerful reason to reject the majority's holding. I would find sections 8(2) and 8(3) of the Indiana statute preempted by federal statute. I therefore respectfully dissent.”

Union Receives Just Compensation

In response to Wood, the Seventh Circuit majority said the union didn't advance any argument based on the federal constitution's “takings” clause so it forfeited any claim based on the Fifth Amendment provision that bars government from taking private property without just compensation.

But even if the union had preserved that argument, the court said right-to-work laws such as the Indiana statute don't effect an unconstitutional taking of union property based on their inability to reimburse the costs of representing nonmembers.

The dissent “overlooks the fundamental fact that distinguishes the union's duty of representation from the other hypotheticals it presents,” Tinder wrote. “That is to say: we believe the union is justly compensated by federal law's grant to the union [of] the right to bargain exclusively with the employer. The reason the union must represent all employees is that the union alone gets a seat at the negotiation table.”

The union's powers as exclusive bargaining representative are comparable to those of a legislature “both to create and restrict the rights of those whom it represents,” the court said. The duty of fair representation therefore is a “corresponding duty” imposed on unions in exchange for their exclusive bargaining powers, the court said.

“It seems disingenuous not to recognize that the union's position as sole representative comes with a set of powers and benefits as well as responsibilities and duties,” the court said. “And no information before us persuades us that the union is not fully and adequately compensated by its rights as the sole and exclusive member at the bargaining table.”

No Federal Preemption

The Indiana law, which applies prospectively only, prohibits a “person” from requiring any “individual” to become or remain a union member, to pay “dues, fees, assessments, or other charges of any kind” to a labor organization or to pay to a charity or third party an amount equivalent to a pro rata share of union dues, fees or other assessments.

The plaintiffs, officers and members of Operating Engineers Local 150, sued the Indiana governor, the state attorney general and other top state officials, seeking a declaratory judgment the right-to-work law violates the federal and state constitutions.

On appeal, the union officers and members argued the “scheme of federal labor law,” laid out in the NLRA and relevant U.S. Supreme Court case law, preempts the parts of the Indiana law that preclude any union security agreements.

The union plaintiffs said NLRA Section 8(a)(3) bans agreements requiring employers to hire only union members, but permits “less severe” union security agreements that require nonmembers represented by the union to pay an agency fee or similar charge.

“Although Congress permitted less restrictive, post-hiring union security agreements under federal law, it also left states free to ban them,” the Seventh Circuit said. “Section 14(b) of the [NLRA] provided that Section 8(a)(3) did not protect a union security agreement if it was ‘prohibited by state or territorial law.' ”

When Section 14(b) was added to the NLRA in 1947, 12 states had constitutional or statutory provisions that outlawed or restricted the union “closed shop” and similar arrangements, the court said. Congress “seems to have been well informed” about those state laws when it passed the Taft-Hartley amendments to the NLRA, the court said.

The Seventh Circuit said under its reading of relevant Supreme Court case law, Section 14(b) protects states' authority to enact laws prohibiting union security agreements that are permissible under Section 8(a)(3) and other NLRA provisions.

The union plaintiffs argued Section 14(b) permits states only to ban union-security agreements that require individuals to join the union or to pay full dues. But the Indiana law goes further by prohibiting unions from collecting any fees from “unwilling employees” within the bargaining unit, the union plaintiffs said.

“[W]e are not persuaded by the [union plaintiffs'] claims that Indiana's law is somehow an extraordinary measure distinct from the numerous state statutes that have harmoniously existed under the federal labor law framework,” Tinder wrote. “Nor are we persuaded by their assertions that the Indiana law represents a mortal threat to the continuing existence of unions as provided under federal law.”

Dale Pierson, of the International Union of Operating Engineers Legal Department in Countryside, Ill., represented the union plaintiffs. Frances Barrow, Grant E. Helms and David L. Steiner of the Indiana Office of the Attorney General in Indianapolis represented the governor and other state officials.

To contact the reporter on this story: Kevin McGowan in Washington at kmcgowan@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com.

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